If a collective investment fund aims to outperform a particular Stock Market index, it is said to be adopting which investment management style?

• A. Active
• B. Lifestyle
• C. Passive
• D. Average

Answer: (A)

Outperforming a benchmark is the hallmark of active management. When a fund adopts active management, its managers research, select securities, and time trades with the goal of beating a specific stock market index. They don’t simply mirror the index; they seek higher returns, accepting the possibility of higher risk and higher costs as trade-offs for that chance to outperform.

If the aim were to replicate the index’s returns, the fund would be described as using a passive management style, which seeks to track the benchmark rather than beat it. The other terms aren’t standard investment-management styles for this objective—lifestyle isn’t a defined fund-management approach, and average isn’t a recognized style.